This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the top of any article.

Banks Fight Libor Antitrust Case

Setting the rate isn’t a competitive process, they argue in court.

Lawyers for Bank of America Corp., JPMorgan Chase & Co. and other financial institutions fighting antitrust claims over the London interbank offered rate told a federal judge that setting the rate isn’t a competitive process.

The banks asked U.S. District Judge Naomi Reice Buchwald in Manhattan today to dismiss lawsuits accusing the banks of manipulating Libor -- a key metric for setting interest rates for trillions of dollars in financial instruments.

Libor fixes the rates under which banks lend money to one another for as little as a day and as long as a year. Rates for 10 different currencies including the U.S. dollar, Japanese yen and British pound are computed daily after canvassing banks that comprise membership panels for each type of money.

“It’s not a rate the banks set competitively,” Robert Wise Jr., a lawyer for Charlotte, North Carolina-based Bank of America, told the judge. “Libor is not something that’s bought or sold or traded. It’s simply a benchmark, an average. Banks don’t sell Libor.”

William Carmody, arguing for the plaintiffs, said the rates are submitted by competitors.

“You’re harming competition because these banks are not motivated to compete with one another,” Carmody said.

Global authorities have been investigating claims that more than a dozen banks altered submissions used to set benchmarks such as Libor to profit from bets on interest-rate derivatives or make the lenders’ finances appear healthier.

Barclays Plc agreed to pay 290 million pounds ($440 million) in June and Royal Bank of Scotland Group Plc paid $612 million last month to U.S. and U.K. regulators to resolve claims. In December, UBS AG agreed to pay 1.4 billion Swiss francs ($1.5 billion).

Charles Schwab Corp., the independent brokerage, and other plaintiffs have said the banks conspired to depress Libor by understating their borrowing costs, thereby lowering their interest expenses on products tied to the rates.

“That interest rate is the price these banks are willing to pay for the use of my client’s money,” Brendan Glackin, a lawyer for San Francisco-based Charles Schwab, told the judge. “When they suppress Libor, they are getting the use of my client’s money at a lower price than they otherwise would.”

2008 Report

In questioning the plaintiffs’ lawyers today, Buchwald referred to a 2008 Wall Street Journal article on Libor about a study that cast doubt on the integrity of the rate. She asked them why they didn’t sue when the article came out, rather than waiting until regulators began issuing subpoenas to the banks.

“Your job here as plaintiffs’ counsel looking for whopping legal fees is not to piggyback on the government,” she said. “You are supposed to be the private attorneys general who for reasons of legitimate self-interest are seeking out the same kind of wrongdoing that the government might.”

The judge didn’t say when or how she would rule on the motions to dismiss.

The consolidated case is In re Libor-Based Financial Instruments Antitrust Litigation, 11-MD-02262, U.S. District Court, Southern District of New York (Manhattan).

Treasury & Risk

Treasury & Risk is an online publication and robust website designed to meet the information needs of finance, treasury, and risk management professionals. Our editorial content, delivered through multiple interactive channels, mixes strategic insights from thought leaders with in-depth analysis of best practices, original research projects, and case studies with corporate innovators.